What the One Big Beautiful Bill Act Means for Section 48 & 48E Energy Credits

The One Big Beautiful Bill Act (OBBBA) alters an array of energy credits and deductions. Here's what you need to know:

Section 48 – Construction Began Before January 1, 2025

In 2022, the Section 48 Energy Credit was enhanced and extended by the Inflation Reduction Act (IRA). The OBBBA leaves Section 48 largely untouched.

Under this section, a credit is available for various types of energy property, ranging from 6 to 70% , including adders and bonuses. The OBBBA does not adjust these adders and bonuses.

To be eligible for Section 48 credit, a taxpayer must begin construction on certain energy property before January 1, 2025. These properties include:

• Solar
• Wind
• Fuel Cells
• Microturbines
• Combined heat and power systems
• Equipment that recovers waste energy
• Energy storage
• Biogas
• Microgrid controllers
• Electrochromic glass

Geothermal heat pump property continues to be eligible for the Section 48 credit through 2032.

The IRA also provided for a 2% credit for “other energy property” (i.e., microturbines). Under the OBBBA, this credit is eliminated for property that begins construction on or after June 16, 2025.

Beginning of Construction

The beginning of construction rules are multifaceted, including the requirement that the construction have continuity. The safe harbor to demonstrate continuity of construction requires that the energy property be placed in service within four years of the beginning of construction.

Generally, the placed-in-service date is defined as the earlier of:

• What depreciation of the energy property begins, or
• When the property is placed in a condition or state of readiness and available for a specifically assigned function

Section 168 and Bonus Depreciation

The OBBBA also changes the depreciable life for energy property under Section 48. Where construction begins after December 31, 2024, Section 48 energy property is now considered a 20-year property instead of a five-year property.

Under the OBBBA, 100% bonus depreciation was made permanent for qualified property acquired after January 19, 2025. For property acquired under a binding contract before January 20, 2025, the original phasedown schedule applies.

Qualified property for bonus depreciation is tangible property with a recovery period of 20 years or less. Despite the change, energy property under Section 48 and Section 48E remains eligible for bonus depreciation.

Section 48E – Placed in service after December 31, 2024

The OBBBA has made several changes to Section 48E credit, accelerating the phaseout dates for solar and wind facilities. It also adds new Prohibited Foreign Entity (PFE) rules and changes the adjusted percentage for the Domestic Content Bonus.

Section 48E operates similarly to Section 48, providing a credit for qualified facilities and energy storage technology (EST) ranging from 6 to 70%. Prior to the OBBBA, Section 48E was available for qualified facilities and EST that began construction before January 1, 2033. After that date, the credit began to phase out.

Under the OBBBA, earlier phaseout dates exist for solar and wind facilities, while credits for other qualified facilities and EST remain the same. Effective for projects that begin construction after July 4, 2026, the credit phases out entirely for any solar and wind facilities placed in service after December 31, 2027.

For facilities that began construction before July 5, 2026, the credit does not phase out, but it must adhere to the new beginning of construction rules provided in Notice 2025-42.

Prohibited Foreign Entity Rules

The OBBBA enacted new PFE rules for many of the IRA-era energy provisions. The PFE rules applicable to the Section 48E facilities and EST address several areas, including material assistance, ownership, and control by a PFE.

Solar and Wind Leasing Arrangements

For tax years beginning after July 4, 2025, no Section 48E credit is allowed for property attributable to either qualified solar water heating expenditures or qualified small wind energy property expenditures.

• Qualified solar water heating property is an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by a lessee if at least half of the energy used by such property for such purpose is derived from the sun.
• Qualified small wind energy property is an expenditure for property that uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the United States and used as a residence by the lessee.

Domestic Content Bonus

Under Section 48E, a domestic content bonus of 2 or 10 percentage points exists, determined based on prevailing wage and apprenticeship requirements.

To achieve domestic content, any steel, iron, or manufactured product component of such a project must have been produced in the United States. Manufactured products are deemed to have been produced in the United States if not less than the adjusted percentage of their total costs are attributable to manufactured products mined, produced, or manufactured in the United States.

Qualified Fuel Cell Property

Under the IRA, qualified fuel cell property was eligible for the same bonuses and adders as other qualifying energy property. The OBBBA adds a new subsection to Section 48E, allowing a flat 30 percent credit for fuel cell property without adjustments. This provision is effective for property that begins construction after December 31, 2025.

Next Steps for Clean Energy Tax Credits

The OBBBA makes changes and additions with varied effective dates. These dates include:

• Sept 2, 2025 — Effective date of Notice 2025-42; applies if construction has not begun under prior Notice 2022-61 before this date.
• December 31, 2025 – Material assistance rules apply to projects started after this date.
• July 4, 2025 – Taxable years that start after this date are subject to PFE ownership and influence rules.
• July 4, 2026 – If construction begins on or after this date, the solar and wind properties must be placed in service after December 31, 2027.

Assessing your energy credits and considering these new rules is critical. We can help you understand the legislative changes, maximize the allowable credits, and prevent possible penalties.